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Skyrocketing steel prices rippling through economy

Hmmm, let's see, it's been maybe a year since the steel industry was moaning and groaning that foreign manufacturers were dumping steel on the U.S. market and depressing prices.

The Bush administration responded by tacking on penalty tariffs for imported steel, which then caused a howl in the international community about unfair trade practices. The tariffs were later rescinded, but in the interim, the steel market had taken a 180-degree turn and what was once just so much surplus had become a quite dear commodity.

U.S. scrap metal dealers, who not that long ago were awash in a sea of scrap metal they could hardly give away, now are making out like bandits as they export everything they can get their hands on. American steel-makers (the few that are left after years of mergers and downsizing and bankruptcies) have gone from a situation of grossly excess capacity to one of a booming seller's market.

Costs of steel are stratospheric, and short supplies are forcing manufacturers of anything containing steel to pay higher and higher prices — costs that are sure to ripple through the economy, with consumers paying more for cars, refrigerators, farm equipment, what-have-you.

At the recent Mid-South Farm & Gin Show at Memphis, equipment manufacturers had a common lament: “Steel prices are killing us.”

So what's behind the transition from too much steel to too little?

The answer — as has been the case with many major market influences over the past decade — is China. Rapidly becoming one of the world's industrial giants, it's importing U.S. scrap metal for steel production like it's going out of style. Last year, China's purchases of American scrap totaled more than $1 billion, setting an all-time record for any country. Some analysts say that could double in 2005.

“I've been a farmer, and in the steel business for a long time,” a Mississippi reader told me. “For the past 12 or 13 years, the price of the steel we bought fluctuated up or down maybe a penny or two a pound. Since last December, the price has increased phenomenally for all steel products. China and Pakistan are buying every piece of scrap metal they can get their hands on — they're like a giant vacuum cleaner, sucking it all up. A year ago, a load of scrap steel at a junkyard was $140, now it's around $500, and still going up.”

Many farm products are affected, he notes, along with thousands of other products purchased by Americans.

“It's really scary,” he says. “I call mills and they tell me they don't have anything, that they're all sold out — and then they quote astronomical prices for the steel they say they don't have.

“Steel has been a bedrock part of the U.S. economy,” he says, “and this sort of thing can be a factor in a resurgence of inflation that will spread throughout the economy.”

Adding insult to injury, some of the U.S. scrap going to China is turned into products that, because of cheap labor and manufacturing costs, are shipped back to the United States to underprice American-made products.